|
As more cable operators hurtle toward the one million mark in the self-inflicted digital set-top box race, the question arises: What are their customers actually watching? Even more important, what will they be watching? The questions take on added significance in the wake of AT&T's recent anointing of Liberate Technologies as its interactive TV software supplier-presumably to goose up the capabilities and content for all those digital STBs AT&T has ordered.
First, the million STB benchmark. AT&T surpassed that level a year ago, Time Warner and Comcast are flirting with it, and Charter expects to hit it fairly soon. In almost every case, however, the boxes in place are low-level devices (such as Motorola's DCT 1000 and 2000 models), whose primary capability is throughputting more channels, thus enabling cable operators to sell a digital tier of extra programming. MSOs have been relatively successful in doing just that. Of course, in most cases, the digital packages are available to less than 20 percent of the multiple system operators' entire customer base. But the acceptance rate has given them bragging rights about digital service plus some sense of accomplishment.
The million-box mark is significant, if only because it's a starting point on a growth curve. Depending on whose forecasts you favor, the overall U.S. digital cable universe will climb from about 7 million at the end of 2000 to somewhere between 10 million and 17 million by this time next year.
That's an uncomfortably wide spread, especially when Motorola already says it has 15 million orders on hand (albeit that's a worldwide figure).
But there's a more troubling issue for cable operators. What if those digital STBs are too little and too late? As MSOs hate to be reminded, the two dominant direct broadcasting satellite purveyors already have well over 11 million U.S. customers-all equipped with digital set-top boxes. DirecTV and Echostar also have shown themselves as masters of tier bundling-putting together program packages that make sense to customers, instead of the random digital tiers that cable offers.
Last month's announcement from EchoStar and Geocast about a packaged datacasting service was yet another reminder about how close the satellite companies are to providing the entire digital feast that cable thought it alone had owned. (See related story page XX.)
A second factor is churn. Digital cable STBs are not in and of themselves a deterrent against churn to DBS service. Satellite providers have shown themselves to be aggressive marketers on price and service quality. Cable STB upgrades-including installation of home equipment-involves a truck roll. That's an experience that still throws fear into millions of potential digital cable users. For many customers, installation by a service team sent out (ostensibly) from Best Buy, Radio Shack or a consumer electronics retailer seems to be a more reliable process. Cable's installation daymares come back to haunt.
Next is the "Rupert" factor. What happens if Mr. Murdoch gets hold of DirecTV, as speculated? His minions are reliable programmers and packagers, suggesting that a Murdoch-led DirecTV (or whatever "Sky" name it becomes) could pose further challenges. Moreover, Murdoch's NDS technology operating subsidiary, which already is deeply involved in conditional access, personalized video recording and storage, could add substantial value to the satellite digital boxes-making them even more competitive.
There's also the interactive component. Let's assume Liberate solves all of AT&T's digital STB programming issues. It will be a mighty challenge to lure program developers and producers to this platform-and then match them with viewers who want to see their kinds of programs. Of course, that is an ongoing programming obstacle, but MSOs (and to be fair, their DBS competitors) will be facing it amongst all their other hurdles.
Finally, there is the issue of modem access and the looming competition of video delivered into the personal computer. Those are two separate issues, both intractably wound into the set-top box issue. The original dream of the DOCSIS process was that the cable modem standard would be built into digital set-top boxes. If-as many visionaries expect-the near future of digital program distribution comes through an Internet Protocol cloud, then those set-top boxes better be fully functional for modem access. Certainly the millions of existing low-end digital STBs in the market don't meet that requirement, meaning that cable operators will confront the replacement nuisance to upgrade their digital early adopters to state-of-the-art technology.
Meanwhile, video to the PC takes on added reality every day. For example, Microtune's single-chip tuner makes it evermore feasible to bring digital video programming through the PC. A few add-in computer cards already have been certified as DOCSIS compatible, speeding the process to deliver broadband access through personal computers. This might not seem relevant to long-time cable video executives, but it's tremendously appealing to the short-attention-span audience that is emerging during this Internet era.
This set-top standoff may play out in several ways. For example, AT&T Broadband's recent alliance with the Best Buy retail chain may set the stage for set-top box deployment-beyond the obvious opportunity to move these costly boxes from MSO capital investment to consumer purchased equipment. Moreover, the new STBs may include features such as personal video recording, the kind of boxes that Best Buy already sells using TiVO and Replay TV technologies.
Of course, Best Buy also is a major retailer of DirecTV systems. That means AT&T will be inside the store-pushing its cable alternative just down the aisle from its most aggressive rival. What's it going to take to explain the cable box to customers who (1) have never had to buy a cable STB before and (2) have to know if their homes are inside the service area of that specific cable provider.
All of this adds up to a hollow shout when cable companies proclaim victory as soon as they reach the million digital STB level. In a business that has lived for decades by fallacious numbers (such as "homes passed," a meaningless tally on the revenue front), this is just another self-deception. To their credit, cable operators have built out an impressive digital plant infrastructure, only to be foiled at the final 12 inches: the size of an STB.
By declaring that digital cable is a success just because the largest MSOs hit the million mark, the industry looks like the Dutch boy with his finger in the dike. The MSOs may have stopped the flood for the moment, but a tidal wave of competing technologies and demanding customers are ready to overwhelm them.
Collectively, these million-unit numbers merely add up to a formula proving that hardware has been shipped successfully from factory to home. Industry-wide, the digital cable business still reaches only about half the number of homes as digital satellite services with a less attractive content package that is often more expensive.
Not exactly an equation guaranteeing success.
|
